LLamasoft grows into record VC investment

IT company emerges from sideline status

Ann Arbor-based LLamasoft Inc. has come a long, long way since its status from 2004 to 2009 as a night and weekend sideline for Don Hicks, its founder, president and CEO.

Its winding path led last week to what is thought to be the largest venture capital investment ever in a Michigan information technology company.

From 2005 to 2010, Hicks was CEO of another Ann Arbor company, a biotech called DNA Software Inc.

In 2004, he had put up a bare-bones website for some supply chain software he'd bought at a discount and had formed a company around it called LLamasoft.

Until 2010, "I ran DNA full time and did the supply chain business on the side," Hicks said recently. "I'd do that nights and weekends. I figured someone would buy a copy of the tool now and then."

To his surprise, the business began taking off — slowly at first, then more dramatically in 2009. A year later, he decided to make LLamasoft his day job.

Last week, he did a lot more than sell "a copy of the tool now and then." He sold an equity stake in the company for $50 million to affiliates of New York City-based Goldman, Sachs & Co. in what is thought to be the largest single round of venture capital funding in Michigan for a nonmedical company.

The largest single VC round ever in the state was the $59.5 million raised last year by Plymouth Township-based ProNAi Therapeutics Inc., a drug company that went public in July.

Earlier this month came the announcement of the largest VC investment in a medical device company in Michigan: $39.5 million for Plymouth Township-based Delphinus Medical Technologies Inc., which uses ultrasound to detect breast cancer.

Hicks told Crain's that the new funding will be used for acquisitions and further product development. He said he expects to close soon on negotiations to buy an overseas company that will add about 100 employees to his firm, which now employs about 270.

He said the deal values LLamasoft at $200 million. "The majority of the company is still owned by management and employees," he said.

In 2012, LLamasoft raised its first round of venture capital, a $6 million round that included Nike Inc., Ann Arbor-based Augment Ventures Management Co. LLC and the First Step Fund of Invest Detroit.

"LLamasoft has established itself as the global leader in supply chain design and has become one of the most exciting companies in the region," said Adrian Fortino, who runs the Ann Arbor office of Mercury Fund, a Houston-based venture capital firm.

In 2012, he was managing director of the First Step Fund when it invested in LLamasoft.

"This raise shows they are taking the company to the next level and are targeting the very large exits we don't see all that often in Michigan, which is really exciting," he said.

By "exit," Fortino was referring to an eventual initial public offering or sale of the company, two ways of returning profits to investors.

"LLamasoft is a great example of a local company going for global dominance. They have really stuck to their product focus," said Sonali Vijayavargiya, founder of Augment Ventures. "They have captured market share by continued product development ... and have done much better than my expectations in 2012."

Part of that gain in market share came from persuading the 3M Co. of St. Paul, Minn., to switch from IBM's supply chain software to LLamasoft's.

Dan Nottestad, 3M's project manager for global supply chain analysis, said that when he joined the group in 2011, he began vetting LLamasoft's software.

He ended up making the switch in 2012 after LLamasoft excelled at four pilot projects. He said LLamasoft's software is intuitive and helps organizations track what can be an extremely complicated process.

"Our supply chain is quite complicated. We have well over 50,000 products; we have 28 divisions and five business groups," he said.

Nottestad said his group focuses on what he calls network optimization, and various LLamasoft software modules help accomplish that.

A product called Inventory Guru helps determine the proper stocking levels for various products in inventory and the best ordering strategies to replace them. Another, called Transportation Guru, models alternative transportation options to those in use, helping find cheaper, more efficient routes and optimal fleet sizes, and Data Guru helps companies analyze big data sets they have been collecting but haven't figured out how to properly use.

Nottestad said that LLamasoft engenders such enthusiasm by its users that a variety of Minnesota-based companies, including General Mills and Best Buy, hold a quarterly user group conference to pass on tips on how to get the most out of LLamasoft's products.

In April, LLamasoft announced it had bought IBM's supply chain business for an undisclosed sum. Hicks said it added 120 new customers for his company, including Apple, Microsoft, Shell and Rubbermaid.

Hicks, who has a bachelor's degree in systems engineering from the U.S. Military Academy at West Point and an MBA from the University of Michigan, formed a predecessor company to design supply chain software called LLamasoft Corp. while working in Utah in 1998.

In 2000, Hicks sold the fledgling company to Ann Arbor-based Crystallize Inc., and moved to Michigan to work briefly for Crystallize.

He then enrolled in a Ph.D. program in bioinformatics at UM, later co-founding Ann Arbor-based DNA Software.

In 2003, Crystallize was struggling, and Hicks said he was able to buy LLamasoft's intellectual property back at a steep discount of $50,000, down from its asking price a year earlier of $500,000.

LLamasoft grew incrementally for a few years, befitting its sideline status.

"In 2009, it started to hit its growth curve, and we've had double-digit revenue growth ever since," said Hicks.

Hicks said LLamasoft's revenue grew from about $24 million in 2013 to almost $36 million last year, with projections of about $42 million this year and $54 million next year.

In 2014, LLamasoft ranked No. 139 on Deloitte's list of 500 fastest-growing North American technology companies, based on five-year compounded annual growth of 830 percent. It was the highest-ranked company in Michigan.

Goldman Sachs was advised on the investment by Mountain View, Calif.-based Fenwick & West LLP. LLamasoft was advised by Chicago-based DLA Piper LLP.

Sonali Vijayavargiya, Augment Ventures: "LLamasoft is a great example of a local company going for global dominance. They have really stuck to their product focus."

"LLamasoft is a great example of a local company going for global dominance. They have really stuck to their product focus," said Sonali Vijayavargiya, founder of Augment Ventures. "They have captured market share by continued product development ... and have done much better than my expectations in 2012."

Part of that gain in market share came from persuading the 3M Co. of St. Paul, Minn., to switch from IBM's supply chain software to LLamasoft's.

Dan Nottestad, 3M's project manager for global supply chain analysis, said that when he joined the group in 2011, he began vetting LLamasoft's software.

He ended up making the switch in 2012 after LLamasoft excelled at four pilot projects. He said LLamasoft's software is intuitive and helps organizations track what can be an extremely complicated process.

"Our supply chain is quite complicated. We have well over 50,000 products; we have 28 divisions and five business groups," he said.

Nottestad said his group focuses on what he calls network optimization, and various LLamasoft software modules help accomplish that.

A product called Inventory Guru helps determine the proper stocking levels for various products in inventory and the best ordering strategies to replace them. Another, called Transportation Guru, models alternative transportation options to those in use, helping find cheaper, more efficient routes and optimal fleet sizes, and Data Guru helps companies analyze big data sets they have been collecting but haven't figured out how to properly use.

Nottestad said that LLamasoft engenders such enthusiasm by its users that a variety of Minnesota-based companies, including General Mills and Best Buy, hold a quarterly user group conference to pass on tips on how to get the most out of LLamasoft's products.

In April, LLamasoft announced it had bought IBM's supply chain business for an undisclosed sum. Hicks said it added 120 new customers for his company.

Hicks, who has a bachelor's degree in systems engineering from the U.S. Military Academy at West Point and an MBA from the University of Michigan, formed a predecessor company to design supply chain software called LLamasoft Corp. while working in Utah in 1998.

In 2000, Hicks sold the fledgling company to Ann Arbor-based Crystallize Inc., and moved to Michigan to work briefly for Crystallize.

He then enrolled in a Ph.D. program in bioinformatics at UM, later co-founding Ann Arbor-based DNA Software.

In 2003, Crystallize was struggling, and Hicks said he was able to buy LLamasoft's intellectual property back at a steep discount of $50,000, down from its asking price a year earlier of $500,000.

LLamasoft grew incrementally for a few years, befitting its sideline status.

"In 2009, it started to hit its growth curve, and we've had double-digit revenue growth ever since," said Hicks.

Hicks said LLamasoft's revenue grew from about $24 million in 2013 to almost $36 million last year, with projections of about $42 million this year and $54 million next year.

In 2014, LLamasoft ranked No. 139 on Deloitte's list of 500 fastest-growing North American technology companies, based on five-year compounded annual growth of 830 percent. It was the highest-ranked company in Michigan.

Goldman Sachs was advised on the investment by Mountain View, Calif.-based Fenwick & West LLP. LLamasoft was advised by Chicago-based DLA Piper LLP.

Correction: The original version of this report incorrectly stated LLamasoft's customers. This version is correct.